Rising Construction Costs Push Sri Lankan Buyers Toward Property Renovation Over New Builds

Colombo, The Gulf Observer: Sri Lanka’s real estate sector is witnessing a significant transformation as investors and homebuyers increasingly shift their focus from constructing new buildings to purchasing properties with existing structures for renovation and expansion.

The trend has emerged amid soaring construction and material costs, which continue to make ground-up developments financially challenging in 2026. Industry observers say the rising expenses have compelled buyers to seek more cost-effective alternatives, particularly older homes and dormant properties that can be upgraded at comparatively lower costs.

Despite the broader property market entering a steady post-crisis recovery phase supported by improved investor confidence and stabilized economic indicators, construction expenses remain a major obstacle for prospective developers and homeowners.

Managing Director of Lanka Property Web, Daham Gunaratne, stated that although vacant lands continue to attract strong buyer interest, there has been a noticeable increase in demand for lands that already contain houses or smaller structures.

Speaking at a recent market forum hosted by Softlogic Stockbrokers, Gunaratne said many buyers now prefer purchasing land with existing buildings and renovating or extending them rather than starting construction from scratch due to elevated material and labour costs.

He noted that investors are increasingly prioritizing sustainable returns and cash-flow generation by revitalizing existing properties and improving occupancy rates instead of depending solely on inflation-driven paper valuations.

The changing dynamics have also triggered a geographical shift in property demand away from traditional urban centers toward emerging suburban corridors. Improved highway infrastructure and enhanced connectivity have boosted interest in areas such as Ja-Ela, Negombo, Kahathuduwa, Piliyandala, and Malabe.

According to Gunaratne, developments including the port access elevated highway and the Port City exit have significantly reduced travel times to central Colombo, making suburban living increasingly attractive for both investors and residents.

Land prices in these expanding suburban regions currently range between Rs. 1 million and Rs. 1.5 million per perch, substantially lower than premium urban locations such as Dehiwala, where prices remain between Rs. 5 million and Rs. 6 million per perch.

However, analysts warn that first-time homebuyers continue to face growing affordability pressures amid a severe housing shortage estimated at over 200,000 units nationwide.

While demand for apartments and vertical living solutions is rising rapidly, a mismatch persists between buyer affordability and available housing supply. Most buyers are seeking properties priced between Rs. 30 million and Rs. 50 million, whereas the majority of upcoming apartment developments are valued between Rs. 40 million and Rs. 90 million.

Industry experts have urged both the government and private sector to introduce targeted affordable housing initiatives and specialized financing mechanisms to support younger buyers increasingly relocating closer to Colombo for employment opportunities.

They emphasize that without immediate policy intervention and affordable housing development, a large segment of the younger generation risks being priced out of Sri Lanka’s property market.